The International Monetary Fund fell into widespread disrepute following its bungled management of the international financial crisis of 1997-1998. Economist Joseph Stiglitz in his book Globalization and its Discontents laid it out on the dissecting table. The fund has generally been seen as the enforcement agent of the global neoliberal regime, imposing programs of control and fiscal austerity on struggling developing nations. As the agent of the industrial nations of the global north imposing their economic will on the global south, the whole thing had a definite flavor of neo-colonialism.
Now the world is in the throes of a global economic upheaval that is creating pain and disruption for the global north. Today’s New York Times has an article that attempts to cast the IMF in a new light. I find its tone a bit on the optimistic and cheery side, but it does provide an interesting summary of recent developments.
Ireland’s reluctant acceptance of a bailout supported by the International Monetary Fund is the latest in a string of developments since 2007 that have thrust the monetary fund into a new position of authority and prominence.
The fund, which earlier in the decade seemed dormant and even irrelevant, is back in a big way. This year alone, it has inaugurated loan packages or credit lines to Colombia, El Salvador, Greece, Jamaica, Mexico, Poland and Ukraine, among others. As Ireland joins the list, many investors are raising questions about Portugal and Spain.
I am particularly interested in trying to determine if the IMF could be a leopard in the process of changing its spots. My main interest is because as the locus of a major international economic crossroads, it’s a place to see if there might be real fractures in the neoliberal regime that has dominated world affairs since the 1970s. While IMF has become shorthand for the imposition of economic austerity, it is simply the agent of the Washington Consensus. It did not create the neoliberal economic philosophy. It has just enforced it.
There have been some changes at the IMF in recent years. It is making some tentative recognition of the tectonic shifts in the global economic order. Emerging nations such as China and Brazil have been given somewhat increased voting power at the expense of Europe. The longstanding practice of always having the leader be a representative of Western Europe may be about to change. There’s anticipation that Dominique Strauss-Kahn from France will be followed by a person from a third world background.
There have been a couple of significant policy shifts. The resistance to capital controls in any form and demands for very low inflation targets have been relaxed. This is essential to deal with the reality of zero bound interest rates and economic stagnation in the older industrial nations. These conditions created large flows of hot money in the direction of the emerging nations with more rapidly growing economies. It is now recognized that they must have the ability to protect themselves against the resulting inflation and elevated currency exchange rates.
The IMF now finds itself playing a major role in the financial crises racking the European Union. This is a long way from banana republics. There was an austerity bandwagon rolling along in the EU well before the IMF became involved. Germany, the money bags of the euro zone, being the primary impetus behind it.
It is being recognized that the IMF has important expertise and technical capacities in developing and monitoring economic bailout measures. Even Argentina, the world’s most notorious IMF rebel, has recently turned to them for technical assistance.
At its recent summit, the Group of 20 charged the IMF with a role working to resolve the global economic imbalance between exporting nations, such as China and Germany, and importing nations, such as the US and the UK. Solving that problem will likely require magic powers that go beyond any single international agency. We live in a world that has a globally interlocked financial system. No nation will likely be able to simply walk away from that reality. Any nation dealing with that system will find it necessary to deal with the IMF for some time to come. That system is clearly going through an important period of transition. It will take some time to see if the changes will be for the better or worse. While I was tempted to try to inject a bit more drama into this diary, I honestly think that the realities are very fuzzy right now. For those in need of a drama fix, just read the daily financial news.
For anybody interested I have started a Facebook discussion group on the EU Financial Crisis. It is an open group and anyone is welcome to join. The name of the group is
European Union Financial Crisis
It also can be located by a Facebook search.